Core views

24Q3's revenue was -21.21% year-on-year, mainly due to a decrease in terminal passenger traffic. Among them, 24Q3 cabinet, wardrobe and accessories, bathroom and wooden doors revenue was -29.7%, -19.6%, -15.9%, and -21.9%, respectively. Net profit attributable to mother in 24Q3 was -11.56% year-on-year, mainly due to cost reduction and fee control and an increase in gross margin due to changes in the share of internal business structure. By channel, 24Q3 direct sales, distribution, and bulk channel revenue were -12.9%, -20.9%, and -28.9% respectively.

By the end of September '24, the total number of the company's stores was 8,180, down 536 from the end of '23, and the company continued to promote the transformation and upgrading of the store structure. Looking forward to the future, the company will firmly develop the household strategy and comprehensively promote the transformation of the marketing system. The promotion of the trade-in subsidy policy is expected to drive a gradual improvement in terminal orders. Furthermore, the company announced that it will distribute a total cash dividend of not less than 1.5 billion yuan each year for the next three years (24-26 years).

occurrences

The company released its three-quarter report for 2024: In the first three quarters of 2024, the company achieved revenue of 13.879 billion yuan/ -16.21%, net profit of 2.031 billion yuan/ -12.08%, net profit after deducting non-return to mother of 1.763 billion yuan/ -19.88%, net cash flow from operating activities 2.701 billion yuan/ -28.14%, basic EPS was 3.33 yuan/ -12.14%, and ROE (weighted) was 10.84% /- 4.00pct.

Brief review

24Q3 revenue was under pressure, and cost reduction helped increase profit margins in the single quarter. The 24Q3 company achieved revenue of 5.296 billion yuan/ -21.21%, mainly due to a decrease in terminal passenger flow. Among them, 24Q3 cabinet, wardrobe and accessories, bathroom and wooden doors revenue was 14.7, 2.77, 0.3, and 0.33 billion yuan, respectively, -29.7%, -19.6%, -15.9%, and -21.9%. 24Q3 net profit of 1.041 billion yuan/ -11.56%, net profit of non-attributable net profit of 0.987 billion yuan/ -12.62%, mainly due to cost reduction and control and changes in internal business structure share. 24Q3 company's gross margin was 40.36% /+2.75pct, net margin was 19.68% /+2.18pct, 24Q3 cabinets, wardrobes and accessories, bathroom, wooden doors gross margin was 33.1% /-6.2pct, 47.6% /+10.0pct, 35.8% /+3.9 pct, 31.2% /+6.8 pct, the gross margin of the wardrobe increased significantly, and the share of sales of major accessories decreased.

Channel division: Retail channels continue to be under pressure, and the decline in bulk channels widens. 1) Retail channels:

24M9 direct management and distribution revenue was 0.528 and 10.393 billion yuan, +4.1% and -18.9%, corresponding to 24Q3:0.193 billion yuan/ -12.9% and 4 billion yuan/ -20.9%, respectively. By the end of September '24, there were 5504, 1002, 954, 973, 549, and 152 stores of Opal, Opal, Bonis, and other brands, respectively, totaling 8180. The number of stores decreased by 536 from the end of 23. The company continued to promote the transformation and upgrading of store formats. 2) Bulk channels: 24M9 bulk and other (overseas) revenue of 2.348 and 0.293 billion yuan, -12.3% and +28.5% year-on-year.

Corresponding 24Q3 was 0.849 billion yuan/ -28.9%, 0.12 billion yuan/ +30.6%, respectively, and the gross profit margin for bulk channel Q3 was 31.8% /+5.5 pct.

By category: Overall demand for home furnishings is weak, and all categories have declined. 24M9 kitchen cabinets, wardrobes and accessories, bathrooms, and wooden doors were 4.029 billion yuan/ -22.0%, 7.188 billion yuan/ -19.0%, 0.8 billion yuan/ -1.6%, and 0.825 billion yuan/ -17.1%. Under weak overall consumption, revenue in all categories declined.

Cost reduction and efficiency help increase gross margin, and high dividends provide steady returns. 24Q1-3's gross margin was 35.54% /+1.55pct, and the net margin was 14.66% /+0.77pct. The main factors were reduced control costs, lower raw material prices, and a decrease in the share of ancillary products. 24Q1-3's sales, management, R&D, and financial expenses rates were 10.15% /+1.51pct, 6.66% /+0.81pct, 4.71% /+0.16pct, and -1.81% /-0.31pct, respectively. Looking at a single quarter, 24Q3 sales, management, R&D, and financial expenses rates were 8.14% /-0.05pct, 6.10% /+1.11pct, 4.44%/-0.25pct, and -2.69%/-1.67pct, respectively. In addition, the company announced a profit distribution target for the next three years (24-26): the total cash dividend will be no less than 1.5 billion yuan each year. Based on the closing market value of 42.3 billion on November 1, the dividend rate reached 3.5%.

Investment advice: Based on weak terminal demand and progress in the reform process, the profit forecast is estimated to be 19.305, 19.687, 20.308 billion yuan (previous values of 20.48, 21.36, 22.43 billion yuan), -15.3%, +2.0%, +3.2% year-on-year, and net profit due to mother of 2.705, 2.835, and 3.017 billion yuan (previous value 2.72, 2.87, 3.05 billion yuan), YoY- 10.9%, +4.8%, and +6.4%, corresponding PE is 15.8X, 15.0X, 14.1X, maintaining the “buy” rating.

Risk warning: 1) Risk of declining real estate completion and changes in market demand: The economic situation is still relatively weak. Society is already active due to active circulation, and the economy is gradually recovering due to activity, but the business environment and supply chain of domestic and foreign markets will also face uncertainty, or bring uncertainty to the achievement of production and operation goals. 2) Risk of increased market competition: The custom furniture industry where the company is located belongs to the furniture segment. As an industry leader, the company has strong advantages in design and development, brands, services, channels, etc. However, since the custom furniture industry is in a transition period from high speed to medium to high growth, and factors such as the increase in cross-border entrants to the industry, the release of production capacity from listed companies, and fragmentation of passenger flow, changes in internal and external factors have caused industry competition from a low level of competition in product prices to a complex level of competition composed of brands, networks, services, talent, management, and scale. 3) Risk of fluctuations in raw material prices: The raw materials of custom furniture products produced by the company include chipboard, MDF, functional hardware, quartz stone sheets and some outsourced electrical appliances. If the procurement price of raw materials fluctuates drastically in the future, it may have an uncertain impact on the company's profit level.